UNIT 43: INEQUALITY AND POVERTY
Income
What influences income?
- Skills
- Qualifications
- Full time/Part time
- State benefits (pension, retirement )
Why is income unevenly distributed between
households?
- Uneven holdings of wealth
- Differences in the composition of
households
- Differences in the ability to learn
Wealth
Wealth is a stock of assets which have a
financial value. Such as shares and government
bonds, give rise to income.
Why is wealth unevenly distributed between
households?
- Assets inherited
- Their savings
- Entrepreneurial skills
Inheritance is a major reason for some people
being wealthy. The more a person can save, the
wealthier they become. Thus Wealth creates
wealth.
INFLUENCE OF GOVERNMENT ON THE DISTRIBUTION
OF INCOME AND WEALTH

• Why would the government decide to influence the distribution of income

and wealth?
• If a situation arises where a very uneven distribution may be socially
divisive.
• To make sure that everyone has access to a certain standard of living
GOVERNMENT INFLUENCE ON DISTRIBUTION OF
INCOME –

• Taxation – Progressive taxes make distribution more even

• Provision of cash benefits – Help maintain a reasonable standard of living
• Provision of free state education and health care – Everyone has access to
these essential services, opportunity to improve their living standards
• Using labor and macroeconomic policies – Minimum wage, legislation,
regional policy, measures to reduce unemployment
THE NATURE AND CAUSES OF POVERTY

Absolute poverty: occurs when people do not have access to basic food, clothing and shelter
Relative poverty: occurs when people are poor relative to other people in the country. They
are unable to participate fully in the normal activities of the society they live in
Causes of poverty :
- Being unemployed
- Being low paid
- Falling ill
- Growing old
POSSIBLE GOVERNMENT POLICY MEASURES TO
REDUCE POVERTY

Ø Improving the quantity and quality of education : Can increase job prospects and
earning potential of the poor and their children
Ø Increasing aggregate demand : It increases employment. Since demand of products is
more, there will be more demand of workers to supply the products
Ø Introducing or raising national minimum wage : To tackle the problems of people facing
low living standards due to low wages
Ø Encouraging more MNCs to set up in the country : Creates more employment
opportunities
Ø Providing benefits or more generous state benefits : The elderly, sick and disabled may
not be able to earn and may not have any savings to support them. Giving them benefits
that help them eschew absolute poverty
Measures to Raise Living Standards
• Improving education and training will enhance their knowledge
• Reducing unemployment
• Improving health care
• Increasing and improving the house stock
• Improving the working conditions
• Reducing pollution
MEASURES OF INCOME AND WEALTH INEQUALITY
• Lorenz curve measures income inequality through calculating the cumulative % of income and
comparing it with the cumulative percentage of the population
• Two common proportions used are- deciles( tenths) and Quintiles ( Fifths)
• 45 degree diagonal line shows an equal distribution of income or wealth.
• scale ranges between 0 to 1
• 0 - perfect equality
• 1 – income inequality
• “ the further the curve is from the 45 degree line , the more unequal the distribution”

% of Share of Cumulative
population income percentage
share of
income
Poorest 20% 5% 5%
Next poorest 8% 13%
20%
Middle 20% 15% 28%
Next richest 25% 53%
20%
Richest 20% 47% 100%